Oil prices up on optimism over supply reduction deal

By Azernews

By Nigar Abbasova

While the current situation in the energy market depends heavily on the implementation of a landmark deal reached between OPEC and non-OPEC states, the prices rise supported by tighter crude supply expectations.

Investors are in the anticipation of a relatively high level of compliance with the production cutbacks, while actions of certain oil producers add optimism that the deal could be materialized.

Brent crude futures were trading at $55.47 per barrel, inching 26 cents up from the last close, while U.S. West Texas Intermediate (WTI) crude stood at $52.20 a barrel, 30 cents up amid optimism around the output cuts.

OPEC earlier agreed to cut oil production by 1.2 million barrels per day to 32.5 million bpd in an effort to bolster prices and recover the market from global overproduction, which became a destruction for prices. Non-cartel states decided to cut oil output by 558,000 barrels per day with Russian participation standing at 300,000 bpd. 

 Compliance of oil producers to reduction pledges, which may oust supply glut, is currently the key thing to observe for market watchdogs.

Major producers such as Russia reported that all oil companies are in a position to cut production, while others like Kuwait and Saudi Arabia told their customers to limit their pumping from January. Moreover, Saudi Arabia, the de- facto leader of the 13-member cartel, stated its willingness to cut production below 10 million bpd if needed (down from around 10.5 million bpd currently).

Delay in crude oil supplies from Libya also became supportive for the market. Additionally, the U.S. dollar lost some 0.9 percent against a basket of other currencies after hitting 2002 highs last week. 

Meanwhile, Venezuelan President Nicolas Maduro announced the tour to the oil-producing countries to finalize the formula aimed at oil price stabilization for the next decade.

However, there were factors that loomed over the market, preventing prices from rising more. Non-compliance risk to the deal came from Iraq, which increased its crude loadings. Moreover, U.S. energy companies increased the number of oil rigs for the seventh week in a row, bringing the total count to 510, the highest index since January, according to Baker Hughes Inc.